July 2010

This is the staff report for the 2010 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on July 1, 2010, with the officials of the People's Republic of China on economic developments and policies. The recovery has taken hold and growth should be in the double digits this year. The main risks facing the Chinese economy include a renewed weakening in the global recovery, a worsening of credit quality (notably from an expansion of lending to local governments), or a misstep in the government's response to rising property prices. A range of policies will be needed to ensure a sustained rebalancing of growth toward private consumption. These include measures to reform and liberalize the financial system, fiscal support for household consumption, an expansion of the social safety net, policies to capitalize on the ongoing process of urbanization, developing the service sector, structural changes to lower corporate savings, and an appreciation of the renminbi. There has been important progress in many of these areas but more remains to be done. The authorities broadly agree with the Fund's advice on the need to rebalance toward domestic sources of growth, but there have been different views on the appropriate pace of some reforms.